The effect of corporate governance on corporate capital structure

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Capital structure determination is considered as one of the most important financing decisions that firms have to make. Due to the increasingly demand of best corporate governance practices after the global financial crisis, also the complexity for firms in finding the optimal capital structure increases. Since there is no consensus if corporate governance mechanisms contribute to the capital strcuture decisions by firms, this study focuses whether both internal and external corporate governance mechanisms effect the corporate capital structure decisions. Prior research mainly investigates the impact of corporate governance and capital structure in economically less developed countries, while this study focuses on firms located in Europe. This study found that larger board size leads to less leverage, while duality, independent board members and block ownership are less important. However, the study found evidence that a composite measure of corporate governance leads to less leverage. The study also reveals that high corporate governance quality can not be used as a check for firms to mitigate the adverse effects of managers during the financial crisis. Finally, the study found some evidence that shareholder protection is an important determinant of capital structure, while creditor rights are less important.
Faculteit der Managementwetenschappen